Inflation effects from negative oil supply shock.

in inflation •  2 years ago 

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Neat charts looking at the inflation effects of a negative oil supply shock.

For core inflation (inflation that excludes food and energy), an oil supply shock doesn't really worsen core inflation. The pass-through effect of an oil price shock is offset by a decrease in demand caused by the oil shock.

For headline inflation on the other hand, the oil supply shock has a large supply effect on inflation. Though there is some demand effect on inflation too and this is driven by a substitution to non-oil fuels.

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Charts from this paper:
https://www.frbsf.org/economic-research/publications/working-papers/2022/18/?amp=1

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